What are functional budgets? Functional budgets of the enterprise
budgeting financial management
It is necessary to distinguish between the concepts of budgeting and budget. So, if budgeting is the process of drawing up and implementing this document in the practical activities of the company, then the budget is, first of all, a document that reflects the quantitative indicators in accordance with which the enterprise conducts its business activities.
A budget is a financial plan that covers all aspects of an organization’s activities, allowing one to compare all costs incurred and results obtained in financial terms for the upcoming period of time as a whole and for individual subperiods. .
A budget is a financial forecast approved by the head of an organization, which defines the main limits of expenses and costs, standards for financial results, and various target financial indicators. The budget includes planned financial estimates, projected volumes of attracting external financial resources (loans and investments), conditions for their receipt, etc.
As noted earlier, budget is a very broad concept and each enterprise interprets it in its own way and each company has its own classification of budgets.
Depending on the tasks set, the budget can be general (general) or private, flexible or static.
A private budget is an activity plan for a specific area of activity (division) of an organization. Given the versatility of an organization's activities and the interrelationship between certain types of activities, private budgets are closely interconnected.
The general (general) budget is a coordinated plan for the organization's activities, developed as a whole based on the main budgetary factor. It combines the private budgets of the organization's departments. The general (general) budget consists of two parts: operating and financial budgets.
Operating budget - current, periodic, characterizes planned operations for the upcoming period. The purpose of such a budget is to develop a profit-loss plan. If the main budget factor is sales volume, then it is formed from such auxiliary estimates as: sales budget, production budget, material costs budget, labor costs budget, overhead budget, general and administrative expenses budget, budget profit and loss statement.
The financial budget reflects the expected sources of funds and directions for their use. The purpose of the financial budget is to plan the balance of funds received from activities and expenses associated with the implementation of activities in such a way that the normal level of financial stability of the enterprise is maintained during the budget period. Its components are capital expenditure estimates, cash flows and a projected balance sheet.
The form of budgets, unlike financial reporting, is not standardized; its structure depends on the type of activity and size of the organization, the object of planning, and the degree of qualification of the developers.
A static budget is a budget planned for a specific level of implementation. All private budgets that are part of the general (general) budget are static, since the income and expenses of the enterprise are predicted in the components of the general budget based on a certain planned level of implementation. In a static budget, the costs of an organization (division) are planned. The static budget includes income and costs based on the planned sales volume.
A flexible budget is the link between the planned budget and the actual results achieved. It is compiled after analyzing the impact of changes in sales volume on each type of cost. It takes into account changes in costs depending on changes in the level of implementation, so a flexible budget represents a dynamic basis for comparing achieved results with planned indicators. The basis for drawing up a flexible budget is the division of costs into variable and fixed. In this budget, the variable costs of the organization (division) are calculated based on standards per unit of production and sales level. Fixed costs do not depend on the business activity of the organization, so their amount remains unchanged for both static and flexible budgets. A flexible budget includes income and expenses adjusted to reflect the actual sales volume.
A budget can have an infinite number of types and forms. Unlike a formalized income statement or balance sheet, a budget does not have a standard form that must be strictly followed. The budget structure depends on what the budget is subject to, the size of the organization and the degree to which the budgeting process is integrated into the financial structure of the enterprise, and the qualifications and experience of the developers.
Budgets are presented in the following table 1.1:
Table 1.1
Classification of types of enterprise budgets
|
Classification feature |
Budget type |
|
By area of activity of the enterprise |
Operating budget |
|
Budget for investment activities |
|
|
Budget for financial activities |
|
|
By type of cost |
Operating cost budget |
|
Capital budget |
|
|
By breadth of item costs |
Functional budget |
|
Comprehensive budget |
|
|
By development methods |
Fixed budget |
|
Flexible budget |
|
|
By time period |
Monthly, quarterly, annual |
|
By period of compilation |
Operating budget |
|
Current budget |
|
|
Forward budget |
|
|
By continuity of planning |
Self budget |
|
Continuous (sliding) budget |
|
|
According to the degree of information content |
Enlarged budget |
|
Detailed budget |
All these types of budgets (Table 1.1) are necessary for making a forecast of the financial condition of the enterprise and for carrying out item-by-item analysis. This classifier allows you to group budgets by type of activity to simplify their consolidation into the main financial reports.
The tool of the budgeting process is budgets. The relationship between budgets is shown in Fig. 1.1.
Rice. 1.1.
The production budget forms the cost of production. General organizational (administrative and commercial) expenses complement production costs and form the full cost of sales volume and serve to draw up basic budgets: budget of income and expenses, cash flow budget, balance sheet.
Many heads of organizations, when building a budgeting system, proceed from certain concepts. There are many budgeting methods and each reflects a certain planning concept.
Speaking about methods for developing budgets, the following methods can be distinguished:
Increment method. It is traditional. The following approach is used: the basis for its preparation for the coming period is based on data on expenses and income for the previous period. Then these data are adjusted taking into account possible changes in prices, as well as possible changes in the volume of product sales. Thus, budgets are prepared on the basis of the increase in expenses and income from the achieved level of activity.
The disadvantage of this method is that ineffective decisions “laid in” in the previous period of activity are transferred to the budgets of the following periods.
Zero basis method. The essence of the method is that each type of activity carried out within the framework of a financial responsibility center or structural unit must first prove its right to further existence by justifying the future economic efficiency of the allocated funds. As a result, management receives information that allows them to more accurately determine priorities.
When comparing these methods, their disadvantages and advantages are revealed. Budgeting using the incremental method is simpler. Budgeting based on a basis is more labor intensive. If applied to all budgets being developed, the process of its preparation is time consuming.
- - flexible budget method. The report is compiled not in absolute numbers, but as a percentage of sales volume. The advantage of this approach is that if the business situation at the enterprise is bad, budgeting a percentage of sales volume is often easier. The risk is that with this approach it is difficult to pay due attention to running a business.
- - line-by-line budget method. It is a long list of items, and the assessment is carried out for each item separately. The larger the organization, the more difficult it is to use this method. This method is often used in government organizations due to the scrupulous calculation of all indicators. Monitoring the implementation of such a budget is very difficult.
- - stock method. Under this method, expenses are planned across the broadest categories. The main advantage of the method is its simplicity; the disadvantage is that there is no assessment of individual decisions and their possible impact on the organization.
The choice of one or another development method, types and forms of budgets is determined based on the specifics, goals and objectives of the organization.
In a commercial organization it’s like this: no sales - no profit. The process of developing functional (operational) budgets always begins with a sales budget, since without assessing and planning possible product sales volumes, it is impossible to create a production budget, procurement budgets and the use of raw materials and materials, labor costs, etc. In this case, special attention should be paid to the limiting factors of the company’s activities, such as, for example, the maximum market capacity, the availability of production capacity, the ability to mobilize financial resources, etc.
Sales budget
The starting point of any planning process in an organization is to forecast market size and product sales volumes. This data is the responsibility of the head of the marketing service. The role of the accounting analyst is to coordinate the budgeting process and bring together data coming from different sources.
When developing a sales budget, the organization’s management should take into account all external restrictions and forecast estimates related to the characteristics of this type of activity and the market situation (for example, possible actions of competitors or price elasticity for manufactured products), as well as an assessment of general economic business factors that relate to planned period (for example, expected inflation rate or change in tax policy). Budgeters must also take into account qualitative factors, such as possible fluctuations in demand or the impact of anticipated changes in specifications or product mix. And only after a thorough assessment of all factors (external and internal) that may affect the volume of product sales should you begin to draw up a budget.
The sales budget looks like a document that shows sales volumes, prices and revenue for the entire range of products. Responsibility for its implementation lies with those who are responsible for the corresponding function in the organization - the head of the sales department and the commercial director.
Sales budgets are developed, as a rule, in prices including VAT, since it is precisely such sales amounts that are indicated in contracts, invoices and other documents with which sales services work; it is in such amounts that funds come to the company’s current accounts, and therefore control The performance of the sales service and its employees is more convenient for such “full” amounts. However, “with VAT” or “without VAT” is an issue decided in each specific case by the organization itself; it is not regulated by anyone from the outside: budgeting regulations are structured as it is more convenient for control.
Let's consider the process of developing budgets using the example of the Selena company (we addressed its activities in example 9.1).
Example 11.1
After researching the product sales market, the commercial service of the Selena company prepared a sales forecast (including VAT), on the basis of which the company’s sales budget for September 20... was developed (Table 11.1).
Table 11.1
Sales budget
Only after the sales budget has been approved, you can begin to develop and detail the production budget.
- As in the following paragraphs, we present the most commonly used job titles of employees responsible for performing certain functions in the organization. In the case of a sales function, the positions may be called both sales director and head of the sales department. ^ Similar to how you can choose an approach in assessing material costs (see paragraph 9.3), the sales price when preparing sales budgets can also be used in assessment with and without VAT. This only determines the method of further processing of the data. In our example, we will use prices that include VAT.
Balance sheet budget model as a new management tool
Budgeting is becoming a very popular management technology in Russia: more and more enterprises would like to systematically describe their financial future. The main tool for such a description is the budget (more precisely, budgets) of the enterprise, and the purpose of this article is to talk about new approaches to creating budgets developed by specialists. To begin with, let’s define the basic concept that we will constantly use - “budget”:
Budget- this is a plan drawn up for the next period in physical and monetary terms, and determining the enterprise’s need for resources necessary to achieve the enterprise’s goals in the corresponding period.
Let us introduce another important definition:
Functional budget- a budget that describes a certain aspect of the enterprise’s activities (functional area).
Most of the approaches described in textbooks and used in practice by many Russian enterprises are patchy, i.e. budgets are allocated based on the most “bright” functional areas: sales, purchasing, production, but do not contain a comprehensive description of the company. As a result, many divisions, most often service and infrastructure, are left without levers to manage the financial component of their activities.
This scheme concentrates on managing the current assets of the enterprise, leaving out complex production processes distributed over time, the movement of capital and liabilities, and the formation of long-term property. We can say that it would be suitable for a small company with a fairly simple operating technology, operating at its own expense and not conducting active financial and investment activities.
MODEL OF BUDGETS “FROM OPU”
The next step in the development of budgeting methodology was the development of a comprehensive budget model based on the principle that can be conventionally called “from the Profit and Loss Statement (P&L)”.
An example of budgets built “from the operating budget” is given below (see Fig. 1). The three gray vertical fields represent the types of budgets: BDR, BDDS or Natural-cost, each block diagram is a separate functional budget, the dotted lines indicate the intermediate consolidation of budgets, and the arrows indicate the sequence of budget formation and their influence on each other. The final data calculated for all three fields forms the company’s Management Balance Sheet.
Rice. 1. Model of budgets “from the operating budget”
For a long time, this approach to creating budgets could be called optimal, since, on the one hand, it created a systematic and transparent picture of the financial and economic activities of the enterprise, and on the other, it was simple and understandable both when setting up budgeting and when operating the implemented system. It can even be argued that for a small or medium-sized enterprise, the budget model “from operational management” is the golden mean between complexity and simplicity.
But, like any methodology, the “from the control center” approach naturally has its limitations. In short, it does not fully reflect the process of balancing the indicators of some budgets with the indicators of others. Here are just a few examples:
There are no explicit accounts receivable and payable;
There are no capital budgets;
The algorithm for using profits is not described.
The practice of INTALEV shows that all these issues, although important, are not a reason for allocating separate budgets for small and medium-sized businesses. All necessary calculations can be made as additions to the budget model, as well as corresponding management reports can be generated for all indicators.
In our opinion, constructing such budgets as independent management objects would only overload and make the budgeting system ineffective for most enterprises. Such budgets simply would not have “owners”, i.e. real people responsible.
But for very large companies (financial and industrial groups, natural monopolies, the largest companies in the oil, gas, metallurgical and energy industries) the situation with “balancing” budgets is somewhat different. In businesses of this scale, indicators, which for smaller enterprises are only auxiliary data, are separate and specific objects of management. Often, to work with numbers that only balance the movement of, let’s say, “main” budgets, separate services and departments with numerous personnel are created. And this practice is justified.
To solve the problem of including balancing indicators in the budget system, the “from the operating budget” model was significantly modernized, eventually turning into a “from the balance sheet” model.
BALANCE MODEL OF BUDGETS
The idea of the balance sheet model of budgets is that movement in any budget, be it natural value, BDR and BDDS, is an analogue of turnover in the debit or credit of accounting accounts, on the basis of which the balance is compiled (all this is also true for management balance sheet accounts ). For example, the Budget of expenses for core activities is the same as the debit turnover in the “Financial Result” account, and the Budget of Cash Payments is the credit turnover in the “Current Account” and “Cash” accounts.
From this we can draw two important conclusions:
Movement on any of the budgets affects, similar to an accounting entry, some second budget.
If it is necessary to create a truly comprehensive budget model, then it should be built on the principle of double entry.
For example, many enterprises maintain a sales budget. From a double entry point of view, any figure entered into this budget should be mirrored in the Accounts Receivable Budget (accounts receivable increased). The Labor Cost Budget is also very common. The data from this budget will also be included in the Budget for settlements with personnel (the company's debt to employees has increased).
The task of building a model using the double entry principle is to compare each of the created budgets to another, balancing budget. Visually, such a structure can be represented as follows: a table with a set of budgets horizontally and vertically, and at the intersection - paired relationships between budgets at the transaction level: the debit turnover of one budget is expressed in the credit turnover of another, and vice versa (see Table 1).
Table 1. Checking budget balance
As a result of structuring budgets on a balance sheet basis, managers of large companies receive a management tool in accordance with the profile of their activities: departments supervising production activities - Budget of production expenses, financial services - Budget of financial investments, departments of corporate management - Capital flow budget, etc. Complex business activities become transparent and much more manageable, and the procedure for drawing up the most important final report - the Management Balance Sheet - is quite simple and unambiguous: the balances accumulated by the end of the period for functional budgets will form the corresponding balance sheet items:
Table 2. Examples of connections between budgets and account turnover
Summarize. It should be noted that the balance sheet model of budgets and its internal relationships are somewhat more complex than the “classical” budgeting scheme (like, probably, any more advanced system compared to its historical predecessors). But it also carries serious advantages that we have described and are necessary for the effective management of complex business activities, especially in large companies. And the task of specialists from these companies, as well as consultants, is to competently and flexibly configure this system in accordance with the needs of a particular enterprise.
Pavel Borovkov
There are several main approaches to creating budgets:
1) budgets for the subject of management:
A) monetary (cash flow budgets - BDDS);
b) economic(budgets of income and expenses - BDR);
V) natural(in-kind cost budgets - NSB);
2) budgets by units of measurement used:
A) cost:
- actual cost- reflect one or another value in monetary units, without reflecting money or cash flows as such ( BDR and budget on balance sheet);
- monetary (BDDS);
b) in-kind cost(budget for work in progress balances at the beginning and end of the period);
3) budgets by level:
A) operating rooms (in the Central Federal District);
b) functional (in various areas of activity);
V) final (for the enterprise as a whole).
Operating budget– a budget that describes the business operations of a separate division of an enterprise that bears a certain financial responsibility; in essence, the operating budget is a tool for delegating authority and responsibility to each central financial institution for the financial indicators related to it. Each CFD corresponds to ONLY ONE operating budget, i.e. the total number of operating budgets in an enterprise is always equal to the number of central financial districts formed in it.
Functional budget is a budget designed to determine the resource requirements for various areas of activity:
- sales(sales budget);
- procurement(budget for purchasing raw materials);
- production(production budget);
- storage and transportation(budget for direct and overhead business expenses);
- administration (management)(administrative expenses budget);
- financial activities(budget of income and expenses for financial activities);
- investment activities(income budget for investment activities).
Functional budgets are formed by items of operating budgets, grouped according to functional characteristics(The relationship between operating and functional budgets is presented in Table 3.1). The system of functional budgets, in accordance with which sequential planning and accounting of the results of economic activities of the entire enterprise takes place, is called budget structure.
Table 3.1 – Matrix of the most common relationships between operating and functional budgets
| Functional budgets | Central Federal District | ||||
| Costs | Income | Marginal income | Arrived | Investments | |
| 1. Sales | + | + | + | + | |
| 2. Procurement | + | + | + | + | |
| 3. Production | + | + | + | + | |
| 4. Storage | + | + | + | + | |
| 5. Transportation | + | + | + | + | |
| 6. Administration (management) | + | + | + | ||
| 7.Financial activities | + | + | + | + | |
| 8.Investment activities | + | + | + | + |
TO in-kind budgets include budgets for goods, inventories and non-current assets. They reflect the movement of all assets of the enterprise, except cash. These budgets can be maintained in both monetary and physical units, and there should always be the possibility of replacing one unit of measurement with another if the need arises. The characteristics of functional budgets by type of valuation are presented in Table 3.2.
Table 3.2 - Characteristics of functional budgets by type of valuation
Obviously, each functional budget relates to to one of three types of budgets:
1) NSB in the form of a budget of goods, inventories and non-current assets;
In accordance with this classification, functional budgets are consolidated and form the corresponding final budgets. For example, the budget for direct production costs, the budget for overhead costs, the budget for commercial expenses, etc., when grouped, form the final BDR.
Thus, the target function of the budgets of industrial enterprises includes the function of maximizing final financial results, as well as a number of restrictions imposed by financial stability factors (3.1), (3.2):
KFR = F (K1, K2, K3...H1, H2, H3...) - to maximum,(3.1)
FS (L, CHOC, SS...) >= FS (norm L, norm CHOC, norm SS), (3.2)
where KFR – final financial results;
K1, K2, K3... - controlled external influences;
H1, H2, H3... - uncontrolled external influences (predicted trends in the external environment);
FS – level of financial stability;
L, NWO, SS... - factors of financial stability: liquidity (L), the amount of net working capital (NWK), the share of equity in sources of financing (SS), etc.;
norm – standard value of financial stability indicators.